Point of Purchase (PoP) is the place where a customer is about to buy the product. This is the crucial point where the exchange takes place. It offers us a last chance to remind or attract customers. In spite of a considerable expenditure on point of purchase material by companies, there is a lack of an established method of measuring the effectiveness of communication at the retail outlet. The current study is an attempt to define and measure the extent of usage of PoP by consumers while shopping. It explores the phenomenon with the help of an experimentation using two main variables; level of information search and store benefits sought. It uses shopping involvement as a mediating variable. During the course of study scales for usage of PoP communication and shopping involvement were developed. In-depth interviews were carried among shoppers to understand their motivations and gratifications with regard to shopping. The interview findings were used to develop scales, which were tested before being used during the experiment. The experiments involved building scenarios specific to shopping situations. Participant observations were carried out at stores with different formats. The study found that all the three variables were significant in terms of main as well as interaction effects. Based on the findings the authors suggest a framework for enhancing the effectiveness of PoP Communication. [W.P. No. 2009-11-07]

George Deltas (Department of Economics, University of Illinois, U.-C.)
Thanasis Stengos (Department of Economics,University of Guelph)
Eleftherios Zacharias (Department of Economics, Athens University of Business and Economics)

This paper empirically examines the joint pricing decision of products in a firm’s product line. When products are distinguished by a vertical characteristic, those products with higher values of that characteristic will command higher prices. We investigate whether, holding the value of the characteristic constant, there is a price premium for products on the industry and/or the firm frontier, i.e., for the products with the highest value of the characteristic in the market or in a firm’s product line. The existence of price premia for lower ranked products is also investigated. Finally, the paper investigates whether firms set prices to avoid cannibalizing the other products in their portfolio, whether competition with rival firms is stronger for products that are closer to the frontier compared to other products, and whether a product’s price declines with the time it is offered by a firm. Using personal computer price data, we show that prices decline with the distance from the industry and firm frontiers. We find evidence that consumer tastes for brands is stronger for the consumers of frontier products (and thus competition between firms weaker in the top end of the market). Finally, there is evidence that a product’s price is higher if a firm offers products with the immediately faster and immediately slower computer chip (holding the total number of a firm’s offerings constant), possibly as an attempt way to reduce cannibalization.

We develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with models of present-bias. Our model also generates the unique predictions that reminders may increase saving, and that reminders will be more effective when they increase the salience of a specific expenditure. We find support for these predictions in three field experiments that randomly assign reminders to new savings account holders.

Choosing the right set of new products to offer is a key driver of profitability. New products often share some design attributes with existing products, thus, firms need to decide which attributes to keep common and which to differentiate. We propose and empirically implement a new methodology that can help managers to navigate the complex decision of where to focus differentiation, using â€œlooks-likeâ€ prototypes that typically become available in the later stages of the product-development process. Our methodology complements early stage product-positioning methods, such as conjoint analysis and perceptual mapping. It also offers a way to estimate the impact of context dependence on choice. Finally, our methodology provides a way to test empirically whether perceptual mapping based on pairwise similarity judgments is appropriate for a product category. Using data obtained froma major wristwatchmanufacturer, w e are able to suggest guidelines on how to differentiate the firmâ€™s offerings and estimate the magnitude of context dependent effects. We also find that for wristwatches, attributes that drive perceptions differ from those that drive choice. Overall, our approach can help avoid falling into the trap of focusing variety on attributes that are costly to differentiate and have little impact on choice.

Consumer co-operatives constitute a highly successful example of democratic forms of enterprises operating in developed countries. They are usually organized as medium or large-scale firms competing with profit-seeking firms in retail industries. In this paper we model such a situation as a mixed oligopoly in which consumer co-operatives maximize consumer-members’ utilities and distribute them a patronage rebate on their goods purchase. We show that when consumers possess quasilinear preferences over a bundle of symmetrically di¤erentiated goods and firms operate with a linear technology, the presence of consumer co-operatives positively affects all industries output and social welfare. The effect of Co-ops on welfare is shown to be more significant when goods are either complements or highly di¤erentiated and when competition is à la Cournot rather than à la Bertrand.

We consider the consequences of a shared brand name such as geographical names used to identify high quality products, for the incentives of otherwise autonomous firms to invest in quality. We contend that such collective brand labels improve communication between sellers and consumers, when the scale of production is too small for individual firms to establish reputations on a stand alone basis. This has two opposing effects on member firms’ incentives to invest in quality. On the one hand, it increases investment incentives by increasing the visibility and transparency of individual member firms, which increases the return from investment in quality. On the other hand, it creates an incentive to free ride on the group’s reputation, which can lead to less investment in quality. We identify parmater values under which collective branding delivers higher quality than is achievable by stand alone firms.

The financial decisions of durable goods makers can impose spillovers on their consumers. Namely, durable goods provide a consumption stream that frequently depends on services provided by the manufacturer (e.g., warranties, parts, and maintenance). Manufacturer bankruptcy, or even the possibility thereof, threatens this service provision and can substantially reduce the value of its products to their current owners. We test this hypothesis in one of the largest durable goods markets, automobiles, using data on millions of used cars sold at wholesale auctions around the U.S. during 2006-8. We find that an increase in an auto manufacturer’s financial distress results in a contemporaneous drop in the prices of its cars at auction, controlling for a host of other influences on price. The estimated effects are statistically and economically significant. Furthermore, cars with longer expected service lives (those within manu facturer warranty, having lower mileage, or in better condition) see larger price declines than those with shorter remaining lives. These patterns do not seem to be driven solely by reduced demand from auto dealers affiliated with the troubled manufacturers or by contemporaneous declines in new car prices. Our estimates imply a potentially large indirect cost of financial distress on car manufacturers.

JEL:

D4

Price Discrimination in Practice: The Market for Drugs in Egypt and the U.S.

Date:

2010-07

By:

Rania Zaher Naguib (Faculty of Management Technology, The German University in Cairo)

This paper attempts to analyze the medical and economical reasons that cause a difference in the price elasticity of patients’ demand to drugs between Egypt and the United States of America. The study was based on two medicines produced by Pfizer (Lipitor and Viagra), with both of them available in Egypt as well as the United States. The result of this study reflected that Egyptians are more sensitive to the changes in price relative to Americans for both Lipitor and Viagra because of different economical and medical factors.